Export Scenario Between Bangladesh and China: Opportunities of Bangladesh in RMG Sector

Export Scenario Between Bangladesh and China: Opportunities of Bangladesh in RMG Sector Professor Dr. Engr. Ayub Nabi Khan Pro-vice Chancellor - BGMEA University of Fashion & Technology Md. Rashed Ullah Technical & Social Compliance Auditor - ITS Labtest Bangladesh Ltd. Doi: 1.1944/esj.217.v13n28p299 URL:http://dx.doi.org/1.1944/esj.217.v13n28p299 Abstract The Ready-made Garment (RMG) industry has already promoted itself as the largest foreign currency earning sector for Bangladesh and occupying the 2 nd position in leading exporters of clothing. From a humble beginning in late 7 s RMG sector has emerged itself and did employment about 4.5 million peoples. China is the largest clothing exporter and represents the lion s share of the world market. In spite of being the second largest exporter, Bangladesh is far behind from China in any category of this sector including export earnings and a number of markets. Whereas China occupies one-third of global market share, Bangladesh has only 6 percent share in clothing export in the world but acts as a lifeline in her economy having 82 percent contribution of export earnings. Bangladesh could be more successful in this sector if it utilizes the available opportunities. For this, Bangladesh should try to grab the opportunities impeding in front because of backwardness of China in clothing export originating recently due to the transformation of the economy to high technology production and higher labor cost in garments. Hence it is important for policy makers to find out the facts and figure in exports of Bangladesh RMG to China. This paper will exhibit the comparativeness of Bangladesh vis-à-vis China in Ready-made Garment sector. Statistical analysis and secondary data sources have been used to make a broad discussion for this study. Bangladesh has the potentialities to be the next China if it can perform well according to the demand and challenges. Keywords: RMG, Bangladesh, China, Export, Wage Introduction It is high time the Ready-made Garments (RMG) sector of Bangladesh started its prosperous journey with a great contribution to 299

country s GDP and foreign exchange earnings which created a tremendous exemplary for many LDC s of the world. Currently, Bangladesh is the second largest RMG exporter of the world holding its continuity of exporting major apparel products to EU and USA. From a humble beginning with only 384 units in 1984-85, the sector has thus made phenomenal growth over the last two decades, the number of units growing to around 45 (BGMEA, 215). Since 199 when the significant economic reform of Bangladesh started, it achieved a growth rate far superior to that of most low-income countries. In FY 215-16 the GDP growth picked up around half percentage point to 7.11% from 6.55% in FY 214-15. Growth was underpinned by the moderate growth in agriculture and robust performance in industry, aided by a buoyant service sectors (Bangladesh Economic Review, 216). Bangladesh government now seeks to raise investment to 32% of the country s GDP within two years in pursuit of an 8.% growth in the gross domestic product (The Financial Express, 18 Jan 217). Previously the major export income was contributed by jute sector, but the scenario become changed. From 1995, total RMG exports increased from 2.5 billion USD to 28.7 billion USD in 216 representing a contribution of about 82 percent of the country s total export earnings. The expansion of employment in Bangladesh RMG sector underwent a robust growth since the commencement of this industry. About 4.2 million workers are directly involved with the RMG sector (BKMEA, 215). China has been producing labour-intensive products and selling them to the rest of the world since the 197's and achieved an increase. Since the introduction of the economic reforms in 1978, China has become the world s manufacturing hub, where the secondary sector (comprising industry and construction) represented the largest share of GDP. With a population of 1.3 billion and rapid economic growth, China dominates the world potentially as the largest exporter of clothing and textiles. Textile and Apparel exports accounted for 12% of overall merchandise export market in China in 215. Main export categories include machinery and electronic products (42.23%), miscellaneous (1.5%), metals (7.75%), stone and glass (3.%), (World Integrated Trade Solution, 215). Since the WTO Agreement on Textiles and Clothing (ATC), which replaced the Multi-Fibre Arrangement (MFA), China has accelerated its integration into global production networks (GPNs). According to CNGA (China National Garment Association), there are more than 1, garment manufacturers with decent capacity in China which employ over 1 million people. Through a continuous path of technical innovation, China gained decades of experience in production management. China has the advantageous capacity in making all kinds of garment products in a fast and timely manner, which secures its front ranking in the world market in terms of capacity and quality. The total export value of China's 3

apparel products in 215 was 174.7 billion US dollars, a decrease of -6.38% over last year accounting for 7.68% of China's total export income. In Textile export, China also remained top although experienced a decline in the value than the previous year. The value recorded 19 billion USD with 2% decline in annual percentage (World Trade Statistical Review, 216). Bangladesh remained second largest exporter positioned next to China with 7.76% annual percentage change and USD 28.7 billion export value in 216 (BGMEA,216). Background of the study China's garment export industry experienced a severe decline in sales in both 215 and 216. China's apparel export to the European Union (28) reached 41.2 billion USD, falling by 1.2% year-on-year, the export to Japan reached 17.3 billion USD, dropping 12.2%, and the export to ASEAN countries hit 35.5 billion USD, slipping 8.5% in 215 according to UNCTAD statistics data center. 4 The sharply depreciated yen and Euro in 215 had a direct negative impact on textile exports, as Japan and Europe have been China's main textile export markets. As China is undergoing an economic transformation, high-technology industries are springing up in China's developed coastal regions to replace labor-intensive industries such as the textile industry. As forecasted earlier by World Bank, China s exports of labor-intensive manufactured goods declined recently. Hussain (213) mentioned that Bangladesh could become the alternative to China by taking the advantage of markets China is vacating. Bangladesh can take the advantage of a low-cost edge over its competitors. The minimum monthly wage in Bangladesh is $68, while it is $128 in Cambodia, $78 in India, $1 in Vietnam and $165 in China (ILO, 215). The report also added that capturing just 1% of China s manufacturing export markets would almost double Bangladesh s manufactured exports. The worldwide clothing and textile business are going through a shift. It is now more modernized, more dimensional, and more vibrant. Also, the global value chain for clothing trade integrates more rapidly than ever before. After passing decades of tremendous success & outstanding growth, RMG sector has emerged itself as a potential sector in Bangladesh s economy. Nevertheless, the gap between Bangladesh and China is huge regarding the volume of the market share by these two countries. Significantly, being the 2nd largest exporter of apparel, Bangladesh occupies only 5.9 percent of the total share of the market whereas China has 39.3 4 Source: UNCTAD data center: Product group [84] represents apparel products. Available at: UNCTAD statistics data center> International trade in goods and services> trade structure by partner, product or service-category> Merchandise trade matrix-product groups, Exports. 31

percent share with its large capacity in an offer (World Trade Statistical Review, 216). One can easily deduce the supremacy of China undoubtedly, and its domination will not diminish soon. But recently the competition to capture the export share of world apparel market has increased more than the past as backpedaling of China on apparel export has created a vacuum in the trade and the competitor countries of Bangladesh are striving their best to craft out their positions in the international markets. To compete with the world s largest exporter of RMG, Bangladesh needs to find out the gaps, comparativeness, new commodious markets and most importantly Bangladesh should be more conscious and uncompromising about the quality of the product. At the same time, Bangladesh will have to ensure proper utilization of the prospects, once any opportunity comes to grab the share of the potential market left by China. However, competition from the apparel exporters for global garment buyers is motivated by not only expanding export market share and economic growth but also the potential to create jobs. The key is to ensure that the dynamism in the industry leads to new jobs for women and men as well as better quality jobs with decent working conditions and adequate wages. Objectives This paper is presented with comparative analysis and discussion has been made to determine some important aspects of Bangladesh Ready-made garments sector. The purpose of this study aims to find the prospects & challenges of Bangladesh RMG sector through a presentation of the comparison of China & Bangladesh. This paper examines the trends (of RMG sector) between Bangladesh and China. The analytical scenario will focus China s recent step backwardness in RMG sector which opens the door for emerging clothing exporters like Bangladesh. The upcoming opportunities for Bangladesh is discussed in Ready-made garments industry. This paper will present facts and figures which will help analysts, researchers of related field, etc. for gathering knowledge regarding the scenario of Bangladesh Ready-made garments sector. Methodology This study is focused to statistics analysis and literature review. Data and information from secondary sources were collected from various relevant trade statistics websites, studies conducted by various journals and research articles and working papers. Information over the last twenty years from 1995 to 215 has been gathered to analyze the growth of market and development on clothing export earnings as Market Diversification entails both Market as well as Product Developments. 32

To present the condition and opportunities of Bangladesh, information published in the different newspapers and websites have been studied and analyzed. The collected data and information are analyzed and processed to reveal the findings and gaps between them. Literature review One reason of decline in China s RMG export in recent years is that the economy is moving faster towards high-technology production. The wages of Chinese garment workers have been doubled, resulting in higher costs of production. The Chinese labor force has stepped up on productivity and skill level to compete in other industries. Garment manufacturing is a low-skilled, labor-intensive industry, which is no longer with the wheel as per statistics of recent years. Rahman and Siddiqui (215) presented several crucial factors like gradual reduction in China's bulk production due to labor shortages and higher wages that have been playing an important role in facilitating the growth of the sector. In the report known as McKinsey Report, Berg et al. (211) found that the potency for the emerging garment industry is becoming more prospectus. Consulting with the Chief Purchasing Officers (CPO) 5 of leading apparel companies in Europe and the US (who cover the 66 percent apparel export of Bangladesh to Europe and US), the report opined that buyers see Bangladesh as the next destination for major apparel sourcing after China. Due to the increased labor cost and capacity constraints in China and other markets, the declining profit margin is the key issue to divert buyer's preferred attention to Bangladesh. Yunus and Yamagata (212) expressed that the potential for Bangladesh to assert its cheap labor based competitive advantage circumscribed by the low-cost share of labor in RMG products. "Many labor-intensive Chinese industries had already shifted to Southeast Asian countries," said Zhang Jianping, a senior researcher at the Institute for International Economic Research under the National Development and Reform Commission. "The labor costs there are four to five times cheaper than in China." (China Daily, 14 Jan 216) Martin (29) stated that the export barriers under Multi Fibre Agreement were a particularly big problem for countries such as China that had quotas despite having productive potential. Mallon and Whalley (24) presented in a survey after accession to WTO that China also faced many critical challenges in the area of anti-dumping. Around 15% of antidumping actions occurred against China since she was a dynamic model of exports. 5 McKinsey survey was conducted by consulting with Chief Purchasing Officers (CPO) of US and Europe who accounts for 46 billion in total apparel sourcing value and covering 66 percent of all apparel exports from Bangladesh to US and Europe. An extensive interviewbased survey was taken with CPO s for the purpose of survey. 33

Hasan (213) pointed out two factors such as cheap labor force and captive market under the quota system that facilitated the development of RMG industry in Bangladesh. A report of World Bank focused some prerequisites to improve e.g. productivity, product quality and lead times to win the competitive race with China and other emerging exporters so that Bangladesh could position itself as an indomitable supplier of clothing (World Bank, 25). Nuruzzaman and Haque (29) found that the current RMG manufacturers of Bangladesh are importing most of the required woven fabrics from China, India, Pakistan, and Indonesia. As a result, the total lead time is becoming longer, putting a negative edge on competitiveness. Asgari and Hoque (213) suggested that domestic supply of fabrics can mitigate the cost of production. Adnan et al. (215) identified that the net value addition of RMG export is not very lucrative because of the weak backward linkage and high amount import of raw materials. Zhang et al. described that the first challenge of China s clothing industry is the lack of technology equipment for which procrastination occurs to develop the products. Hence, long product development cycle is faced by the producers. Another problem was stated by Xiang and Zhenzhen (21) that few factories emphasis on the priority of style, not the quality of garments. They are also reluctant to protect the environment. Hossen (214) recommended that there should be research and training institute to develop the RMG export. Expansion of export development fund with simplification of export procedures can accelerate the onward role of Bangladesh in competition with China and other exporters. China's garment industry is concentrated in the coastal areas of the country. According to Fair Wear Foundation report, the top five regions of China s garment production in terms of export value are Zhejiang (32.6 billion value, 11.68% growth rate), Jiangsu (24.79 billion value, 4.46% growth rate), Guangdong (33.31 billion value, 5.51% growth rate), Fujian (16.88 billion value, 19.26% growth rate), and Shandong Provinces (11.4 billion value, 7.47% growth rate). Uddin (214) revealed the fact that any political violence, strike in Bangladesh interrupts the whole garment transportation system through the shipment because of the centralization of this industry near Dhaka. Qiu (25) found that, with the improving living standard of the Chinese people, local demand for high-quality textile and apparel goods continued to rise which brought another wave for changes in the industry of China. Results and Discussion Annual GDP and growth (%) The Chinese economy experienced an astounding growth in the last few decades that actuated the country to become the second largest economy 34

of the world. China s annual Gross Domestic Product (GDP) achieved a robust prosperity enriching from USD 2.75 trillion in 26 to USD 11 trillion in 215, with a 6.9 percent annual growth rate (Figure 1). In 214, annual GDP was USD 1.48 trillion with a much higher growth rate of 7.3 percent. In 215, GDP per capita recorded USD 827.68 which was USD 7683.5 in 214. Figure 1: Annual Gross Domestic Product and growth % of Bangladesh and China Billion USD 12 11 1 9 8 7 6 5 4 3 2 1 275 355 46 511 61 757 856 72 8 92 12 115 129 133 15 173 195 Source: World Bank (26-215) 11 16 148 961 14 26 27 28 29 21 211 212 213 214 215 Bd China Bangladesh Growth (%) China Growth (%) In the last decade, Bangladesh has recorded GDP growth rates above 5 percent influenced by massive development in the garment industry. Although three-fifths of Bangladeshis employed in the agriculture sector, three-quarters of exports revenues come from producing Ready-made garments. Bangladesh s economy grew by 6.5 percent in 211, remained stable in 212 and slowed down to 6. percent in 213. In 214 GDP growth was stable too and in 215, GDP grew by 6.6 percent (Figure 1). Per capita GDP reached USD 1211.7 in 215. GDP per capita increased to a greater extent where it was only USD 495.85 in 26. Annual trade balance (2-215) China s current account has recorded a surplus in every year since 1994. China reported USD 592998 million trade surplus in 215, compared to a USD 3836 million surplus a year earlier. It was a surplus of USD 24179 million in 2. As imports fell and exports rose, the trade balance of China followed a thriving path between the years 23 to 28. Followed by the global recession, country s export earning became less in 29. On the other hand, the volume of imports increased significantly in the subsequent years until 213. The trade surplus of China reached USD 18157 million in 12 1 8 6 4 2 Growth (%) 35

21 to USD 25915 million in 213 as a fast growing economy with affluent high-technology industry. (Figure 2-A) Figure: 2-A Figure: 2-B 6 2 22 24 26 28 21 212 214 4-3 2-6 -9-12 -15 Source: UNCTAD Statistics, Merchandise trade balance, Annual. Bangladesh has been recording sustained trade deficits since 1976 mainly due to a high value of imports. Bangladesh recorded a trade deficit of USD -782 million in 215. Balance of Trade of Bangladesh averaged USD -6351.31 million from 2 until 215, reaching the highest deficit of USD - 11862 million in 214 and the lowest of USD -2443 million in 22 (Figure 2-B). Share in World s total clothing export China continued to play the most vital role being the lead exporter of clothing in last decade. From figure her dominance over the all exporters is visible too. China s annual share in world clothing market was 3.6 percent in 26 and it reached to 39.3 percent in 215 (Figure 3). The share was 38.6 percent in 213 and 214 consecutively and despite the declining export value in 215, its share increased in the world clothing export. Figure 3: Country s Share in World s clothing export 1 (%) Share in world export 75 5 25 3,2 3,5 3,3 3,7 3,7 4,1 3,1 3,2 3,3 3,7 4 4,8 3,3 2,8 3 3,6 1,7 2,1 2,5 2,7 4,5 4,8 4,7 5,1 6,6 5,9 2,8 2,9 3 3,4 3,6 33,4 33,2 34 36,9 37,3 37,8 38,6 38,6 39,3 26 27 28 29 21 211 212 213 214 215 China Bangladesh Vietnam India Source: International Trade Statistics (26-215) and World Trade Statistical Review 216. 36

The possession of Bangladesh as the 2nd largest exporter in 215 recorded 5.9 percent which was 6.6 percent in the preceding year. The backwardness was invaded by sound advancement of her nearest competitors in apparel market, for instance, 4.8 percent share of Vietnam followed by 4. percent in 214 and 4.1 percent share of India followed by 3.7 percent in 214 (Figure 3). Though the annual value of export increased in 215, this backwardness clearly indicates the hint of Bangladesh s high competitiveness with emerging clothing exporters in future. Annual total export value of clothing (1995-215) In 215, Bangladesh accounted for USD 26.6 billion (5.9 per cent) of global exports of garment. This marks an astounding rise from USD 2.5 billion in 1995. Figure 4 shows the continuous increase in export value of the country experienced no decline in annual export value for a particular year than the previous year after 21. The value of RMG export increased USD 183 million in 214 than 213 and USD 219 million in 215 than 214. Figure 4: Annual total export value of clothing Export value in million US$ 2 18 16 14 12 1 8 6 4 2 Banglade sh 115238 119978 17261 129838 153774 159614 177435 18667 17472 2489 2449 2629 2534 3432 3183 3847 348 4158 378 4825 3671 4595 3665 465 4132 5249 5261 6219 61856 69 74163 8934 95388 935 11877 11892 14855 19214 19788 2351 24584 2663 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 Source: International Trade Statistics and World Trade Statistical Review 216, BGMEA trade database. China has been the international leader in garment exports for decades. In 215, it exported USD 174.7 (Figure 4) billion in apparel and dominated 39.3 percent of the export market share among all economies. Annual export growth from 1995 to 215 was robust and exceeded doubledigits in Bangladesh (48.4 percent) and China (31.3 percent). Clearly, these trends provide strong indication that dominance of China in RMG is still exists. 37

Annual growth rate of Ready-made garments export Bangladesh s export grew by only 3 percent in 212 whereas it grew by 29 percent in 211. The export of Ready-made garments (RMG) was expected to be decreased in the subsequent years after massive accidents like collapse of 'Rana Plaza and fire in 'Tazrin Fashions'. Those accidents created negative impressions on Bangladesh RMG. Nevertheless, Bangladesh achieved a healthy rate of growth in RMG export in the following years having 19 percent growth in 213 and 5 percent growth in 214 (Figure 5). This indicates the continuous improvement of the sector and the ability of overcoming sudden obstacles valiantly. However, growth becomes 8 percent in 215. Figure 5: Annual growth rate of Ready-made garments export 4 (%) Annual Growth 2-2 -4 China Source: International Trade Statistics and World Trade Statistical Review 216, BGMEA trade database. Annual growth in apparel exports from China recorded 5 percent in 214, while the growth rate becomes down to -6 percent in 215. Impacted by the financial crisis, clothing exports in China declined from USD 12. billion in 28 to USD 17.2 billion in 29, hitting the bottom at a negative growth rate of -11 percent (Figure 5), but bounced back to a positive 21 percent in 21 to USD 129.9 billion. Particularly, the major contrast between Bangladesh and China in terms of annual growth rate is seen if the scenario is closely analyzed between recent years. Between 21-215 annual growth rates for China was only 6.96 percent where for Bangladesh, it was 15.82 percent. Share in economy s total merchandise exports Figure 6 shows how dominating contributor the RMG has become for Bangladesh throughout the years in the total merchandise exports of the country. In FY 2, Bangladesh s Ready-made garments sector s contribution was 75.6 percent which in 215 increased to 82 percent on its way to reach USD 2894.16 billion. Since its inception in early 8 s (when 38

the share was only 3.89 percent in FY 1983-84) this sector has established itself as a major source of export income for Bangladesh (BGMEA, 215). Figure 6: Share in economy s total merchandise exports 1 75,6 75,1 76,6 75 74,8 74,2 75,6 75,8 79,3 77,1 78,2 78,6 79,6 81,1 81,7 82 (%) Share 5 14,5 13,8 12,7 11,9 1,4 9,7 9,8 9,5 8,4 8,9 8,2 8,1 7,8 8 8 7,7 China Bangladesh Source: International Trade Statistics and World Trade Statistical Review 216, BGMEA trade database. China s clothing export accounted for 7.7 percent to its total merchandise export in 215 slowing from 8. percent a year ago. In 2 China s clothing export contribution was 14.5 percent and it dropped down gradually mainly due to strong contribution of other manufacturing sectors in country s total merchandise export. RMG export earning VS Total export earning Figure 7-A: RMG export value VS Total export value (Bangladesh) Million USD $35. $3. $25. $2. $15. $1. $5. $ RMG export Total export Source: BGMEA trade database. Bangladesh s total export value in FY 214-15 was USD 31.2 billion where it was USD 5.75 billion in FY 1999-2 (Figure 7-A). In FY 21-2 RMG sector had a poor export earnings (USD 4.58 billion) compared to previous Fiscal year (USD 4.86 billion) mainly due to the political instability regarding the national election of Bangladesh. In FY 28-9 Bangladesh s total export earnings didn t fall only because of its RMG contribution to the 39

economy which held a healthy growth in spite of the global recession. The importance of RMG sector in the country s economy can readily be clarified. Figure 7-B: RMG export value VS Total export value (China) Million USD $2.5. $2.. $1.5. $1.. $5. $ RMG export Total export Source: UNCTAD Statistics data center. In 214 China exported USD 2.34 trillion, making it the largest exporter in the world (Figure 7-B). During the last five years the exports of China have increased from USD 1.58 Trillion in 21 to USD 2.27 trillion in 215. The major export earnings of China don t led by clothing sector like Bangladesh which represents only 7.7 percent of the total exports of China, accounted for USD 174.7 billion in 215. Top 1 Ready-made garments (RMG) importers Figure 8-A: Top 1 Ready-made garments (RMG) importers of Bangladesh Million US$ $6. $5. $4. $3. $2. $1. $ 5298 4131 2516 1341 1496 154 1 68 559 642 58 4367 2667 1556 156 1237 929 789 592 656 Source: BGMEA trade database. 5659 4364 The two major destinations for Bangladeshi garment exports have been the United States and the European Union which account for over 8 percent of the total exports. Figure 8-A provides information of 3234 1727 1635 1244 974 758 681 633 213 214 215 USA Germany UK Spain France Italy Canada Belgium Japan Netherlands 31

Bangladesh s exports in top 1 destinations in recent years. USA is the most lucrative market for Bangladesh RMG Export. In 213 the total export volume to USA was USD 5298 Million where it becomes USD 58 million and USD 5659 million in 214 & 215 respectively achieving 13 percent of growth in 215. German market slightly decreased to USD 4364 million in 215 which was USD 4367 million in the previous year. Market of United Kingdom as the 3rd largest exporter showed a tremendous growth (21 percent). In 215, export to all other markets listed in tops ten except Belgium and Netherlands increased in export volume. Figure 8-B: Top 1 Ready-made garments (RMG) importers of China Million US$ $4. $35. $3. $25. $2. $15. $1. $5. $ 3989 2217 7722 8292 1728 9328 44 4724 4791 385 33471 1975 9731 8887 8937 111 5147 511 5312 416 35787 Source: UNCTAD Statistics data center. 1734 142 7467 7195 726 594 583 4438 4127 213 214 215 USA Japan UK Germany China Hong Kong SAR Russia Korea republic UAE France China has become a major competitor of Bangladesh since its accession to the WTO. Still, it has been occupying the top position in the global apparel market. Despite the decline of annual growth, China increased its market share in the USA by USD 33471 million in 214 to USD 35787 million in 215. Other major importers of China are Japan, UK, Germany, China Hong Kong SAR, Russia, Korea Republic, UAE and France. Notably, six of the top ten importers of China imported less in 215 than 214. The countries imported less are Japan, Germany, Hong-Kong SAR, Russia, and France. During this period Bangladesh s share increased from USD 156 (214) to USD 1635 (215) in France and USD 592 (214) to USD 681 (215) in Japan (Figure 8-A). 311

World s top 1 RMG importer s import (%) from Bangladesh and China Figure 9: Export share in top 1 Ready-made Garments (RMG) importers of world in 215 % share of Bangladesh % share of China (%) Share 7 6 5 4 3 2 1 6,58 48,28 36,93 31,4 21,2 18,94 22,51 2 26,47 3,39 5,84 12,39 2,38 11,59 6,98 1,9 8,9,65 4,66 9,84 Source: Author s calculation based on Bangladesh and China s export earnings as of BGMEA trade database and UNCTAD statistics respectively. USA the largest apparel market in world imported 5.84 percent from Bangladesh and 36.93 percent from China (Figure 9). Germany is the second largest importer of Bangladesh and fourth largest for China that imported 21.2 percent from China and 12.39 percent from Bangladesh in 215. Japan being second largest importer of China imported 6.58 percent of its clothing items from China and Bangladesh has a very negligible share of (2.38 percent). China has the dominance over other markets too and the reason is simply the big size of its clothing industry, demand capacity with some other facilities such as price, lead time, etc. EU and USA market Figure 1-A: EU (28) and USA market for Bangladesh for both Knit and Woven items 25 22734,11 Million US$ 2 15 1 5 8544,9 9665,81 1537,26 12741,79 18254,69 1663,76 2762,87 23788,6 27 28 29 21 211 212 213 214 215 EU (28) KNIT EU (28) WOVEN USA KNIT USA WOVEN Source: International Trade Center (ITC). Product group 61 in Harmonized System (HS code) represents Knit items and 62 represent Woven clothing items. 312

Bangladesh has high demand for the ready-made garment (RMG) exports in European Union. After the changes made on 18th November 21 by the European Commission (EC) in the rules of origin (RoO) system that came into force on 1st January 211, the export growth increased significantly to 15.6 per cent (211-215). On the contrary, the export growth of China in EU market didn't change notably during 211-215 rather decreased slightly (-.47 per cent). The main RMG export item of Bangladesh to the USA is woven garments. Export of woven items accounted for US$ 3945 million in 215 performing a tremendous growth from US$ 226 million in 27 (Figure 1-A). From figure it is also apparent that woven items dominate as the most earning product for US market where Knit items lead the top position in case of China apparel export to USA. Knitwear did not play a prominent role in the export of RMG products from Bangladesh to the USA; but recent scenario has been changed in a small extent. Figure 1-B: EU (28) and USA market for China for both Knit and Woven items 8 7457,96 71711,35 65216,31 65911,75 7 6443,85 55989,53 Export value in million US$ 6 5 4 3 2 1 45239,614568,2 36883,73 27 28 29 21 211 212 213 214 215 EU(28) KNIT EU(28) WOVEN USA KNIT USA WOVEN EU(28) & USA total Source: International Trade Center (ITC). Product group 61 in Harmonized System (HS code) represents Knit items and 62 represent Woven clothing items. Garment exports to USA, the largest apparel market for China after EU, accelerated US$ 1758 million for Knit and US$ 15141 million for woven in 215. The earnings were US$ 16236 million and US$ 1434 million for knit and woven respectively in 214 (Figure 1-B). In spite of increased export earnings from USA, the total export earnings from EU (28) and US market became less due to declined export earnings from EU (28). The export fell in 215 although successive growth of preceding 3 years. Knit export accounted for US$ 18742 million and woven export accounted 313

for US$ 2249 million which was US$ 21317 million & US$ 2221 million for knit and woven respectively in 214. Several factors are accelerating the growth of RMG sourcing from Bangladesh. The shortage of labour in coastal areas of China, increased wage, growing of more value added industries, shifting of workers for better jobs are some external factors mentioned in the McKinsey report. In addition, price attractiveness, the sufficiency of capacity to meet the high volume supply, favorable capability are numbered as the key strengths of Bangladesh to be the next choice of sourcing by the CPO s. Market diversification Figure 11: No of export markets for Knit and Woven items No. of Countries 2 1 19 19 86 94 138 22 23 117 156 212 212 133 Knit Woven Knit Woven Knit Woven In 22 In 211 In 215 Bangladesh China Source: Export Promotion Bureau (EPB) and International Trade Center (ITC). As showed in figure 11, in 22 Bangladesh s RMG items were exported to only 86 (knit) & 94 (woven) destinations, whereas the number increased up to 138 & 117 for knit and woven respectively. In 215 destinations further increased to 156 & 133 indicating development of newer 7 (knit) & 39 (woven) markets. However, the rate of market exploration is higher for knitwear items compared to woven items. In last decade, the number of destinations for apparel export of both Bangladesh and China increased where the improvement was noteworthy in case of Bangladesh. China s export destination for RMG products found additional 22 markets for both knit and woven items from 22 to 215. Still Bangladesh is too far away from China in terms of export destination which makes the big difference for higher export earnings. 314

Wage differences between Bangladesh and China Figure 12: Ready-made Garments worker wage in 215 $2 $15 $1 $5 $ $68 $165 Bangladesh China Source: ILO (Minimum wages in the global garment industry: Update for 215) Figure 13 provides a simple scenario of minimum wages in RMG sector in Bangladesh and China as ILO, 215. In Bangladesh, Monthly minimum wage is US$ 68 which was adopted in late 213 aftermath of incessant labor unrest and lay-up of the workers. Monthly minimum wage in China is USD 165 which was adopted in May, 213. Still, Bangladeshi worker s minimum wage is very cheaper compared to the other emerging garment producing countries as well as China. Export scenario in 216 The following chart shows the export scenario between Bangladesh and China with monthly export data in 216 Table 1: Export scenario in 216 215 216 Growth % China Bangladesh China Bangladesh China Bangladesh December 1798 2673 14273 2578-16.52-3.55 November 1338 2224 12526 231-5.88 +3.87 October 14445 1799 12839 2156-11.12 +19.84 September 1726 1954 1545 1822-12.56-6.76 August 1983 227 17686 2726-7.32 +2.9 July 17739 2215 167 2118-9.41-4.38 June 15881 2567 14889 311-6.25 +17.3 May 13347 2359 13311 2447 -.27 +3.73 April 1456 1939 11195 2197 +7.7 +13.31 March 6689 275 8929 2312 +33.49 +11.42 February 13279 217 9575 2366-27.89 +12.29 January 15825 242 14681 2626-7.23 +8.51 Total 17428 2662 157819 28669-9.45 +7.77 Source: BGMEA trade database (216) and China Customs Statistics (216). 315

According to statistics from Chinese customs, the total export value of garments reached USD 157.8 billion in 216. The growth rate of garment exports dropped to -9.45 percent. Bangladesh continued to sustain its positive growth rate in 216 like previous years (7.77 percent). The export value reached to USD 28.67 billion (Table 1). Challenges of Bangladesh RMG sector Although the epic growth of RMG industry of Bangladesh, challenges are still there. However, challenges can become opportunities if they are addressed with higher concern from government and policy makers. Limitation lies in every vital stages of this industry. Some major limitations are discussed in this section. Low prize of apparel products is one of the reason of sourcing from Bangladesh. It is often seen that RMG suppliers competes with each other to decrease the prize with a view to grab the order which eventually impacts on lower export income. Due to the homogeneity of garment industry products, competition among the suppliers are intense. Another limitation is, still the textile industries of Bangladesh are not capable of producing high standard fabrics. Shortage of capital necessary to develop local sources for quality fabrics/yarn is a major weakness. The local textile can fulfill only 2 percent of domestic demand for woven fabrics. However, there is ample scope of textile industry to grow as it has a big domestic market for fabrics. Unlike past Bangladesh government, employers and the owners of garments sector are giving priority to workplace safety, compliance-related issues and non-hazardous working conditions to prevent accidents. But the crises similar to Rana plaza and Tazrin Fashions can change the whole scenario of this rising sector if happens again. These would adversely affect the growth of RMG sector and can lead to a downward slope of Country s export value to world. Several authors have analyzed aspects of the garment industry in Bangladesh. Of the various aspects of the industry, the problems and the working conditions of workers have received the greatest attention. In previous decades, this industry relied on low wages and minimum standards in working conditions, however low labour costs is not the prime driver of the sourcing decisions. In recent years customers are increasingly prioritizing productivity and reliability of supply. Hence they are also emphasizing to minimize reputational risks of poor working conditions. The first victim of political violence is the garment sector as the exporters face challenges in production, marketing, distribution of raw materials and shipment. During the latest spell of shutdown, almost all garment factories suffered shipment hassle. Besides, poor road 316

communication and a messy traffic system have made the sector vulnerable. The goods laden vehicles have to stand for hours in the traffic jam on the way to sea-port from the center of country. Many garment exporters complained that they cannot meet the strict lead-time set by the international buyers for delayed shipment in Chittagong port due to poor road condition. Moreover, the centralization of garment industries in the middle of the country made this situation more critical. So, political stabilization is the utmost need for garment sector. Because of shortage of power and gas, the supply is not continuous which lead the industries to use generators for uninterrupted production, resulting in the increasing cost of productions. Many composite garment units are failing to start production only for the lack of gas connections in the factories. In garments sector, very few workers get training before joining in their services. The training system is still very poor. For achieving higher prize with maximum quality of product, the skilled man-power should be one of the major concern for upcoming future of RMG. In this context, Government of Bangladesh has taken an initiative to increase skilled manpower mainly in garments sector. The program so called SEIP (Skill for Employment Investment Program). Currently, Bangladesh do not enjoys the zero-duty benefits under the Generalized System of Preferences (GSP) from USA because of the massive collapse of Rana Plaza in 213. Bangladesh supplied 6.57% of the readymade garments (RMG) in the US market last year. In the first 7 months of 217, it decreased to 6.41%. But the competition has increased in Vietnam and India market. However it is expected that there will be no major fall. Some other major limitation of Bangladesh in RMG industry is high dependency in imported raw materials, higher interest of bank loan, poor logistics and shipping facilities, rely upon foreign engineering services for maintenance of machine and utilities service etc. Conclusion The entrepreneurs of Bangladesh can demonstrate a remarkable ability to take the advantages of business opportunities that will emerge in future. Since the beginning, the industry has continued its growth and the export income are expected to become double in next five years. For Bangladeshi garment workers, wages have remained lower than other countries. The country also benefits from a large labor force and the garments industry is also growing up with this potential which offers capacity in size of an order. Also, weak domestic consumption, shortage of orders, increasing costs of electricity, and environmental controls have left Chinese textile companies striving to cope with international competition. To 317

attain a strong position in world apparel market, Bangladesh should differentiate their products, take advantage of the free trade, zero tariff scheme agreement and integrate the industrial chain vertically and horizontally to make the pipeline more effective and hence enjoy cost savings. In light of the changes in market and fashion trends, Bangladesh should pay more attention to non-cost factors such as one-package buying, the application of Information and Communications Technology (ICT) in design and pattern making, speeding up the supply of samples, providing a variety of products and services, and enhance credit. The ongoing rise in Chinese wage and currency has made Bangladesh a favorable investment destination for largest clothing exporters of the world. Supply capacity to produce cost effective but quality RMG products with over 45 factories, Bangladesh is clearly ahead than other suppliers in this respect where Indonesia has about 245 factories, Vietnam 2 and Cambodia 26 factories (BKMEA). Favorable trade agreements: EU-GSP everything but arms rules on duty-free imports of garments from Bangladesh has made sourcing from Bangladesh more attractive. Another key prospect for growth of Bangladesh s garment industry involved with the size of the global apparel market, which is following an augmentative path. Therefore, undoubtedly, there is a great opportunity in front to further penetrate the global apparel market and boost export earnings of Bangladesh. Proper planning should implement to boost up the RMG export. There should be separate garments industrial zone to simplify the transportation though shipments without barriers. Bangladesh has huge potentials if opportunities could be grabbed and used in a timely manner. References: 1. Adnan, A., ATM., Rakib, A. and Rahman, M., (215), Export trend of Bangladesh: the dominance of ready-made garments industry, Research Journal of Economics, Business and ICT, Vol.1, Issue 1, pp. 25-31 2. Asgari, B. and Houqe, M.A. (213), Analyzing and modeling of supply chain performance in Bangladesh Ready Made Garments, Ritsumeikan Journal of Asia Pacific Studies, Vol.32, pp. 57-58. 3. Bangladesh economic review (216), Chapter-2: GDP, Savings, and Investment, Finance Division, Ministry of Finance, Government of the People's Republic of Bangladesh, pp. 1(1) 4. Berg, A., Hedrich, S., Kempf, S. and Tochtermann, T. (211), Bangladesh s ready-made garments landscape: The challenge of growth, McKinsey & Company, pp. 3-6. 5. BGMEA Trade database, available at: http://www.bgmea.com.bd/home/pages/tradeinformation 318

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